Relief for pension funds as retaliatory tax code dropped from US budget bill

Tax provisions that could have significantly curtailed European pension funds’ investment in the US are being scrapped from a budget bill going through Congress.

Leaders in the House of Representatives and Senate agreed to remove the proposed tax code after treasury secretary Scott Bessent announced late on Thursday that the US administration had reached a joint understanding on tax with countries in the G7.

The agreement reached by the US authorities and the G7 relates to a landmark global minimum corporation tax rate deal brokered by the Organisation for Economic Co-operation and Development (OECD) in 2021.

According to the Financial Times, the G7 on Saturday said it had agreed to a “side-by-side solution” of taxation that would exempt American companies from some parts of the global minimum tax regime because of the taxes they pay in the US.

Section 899 of president Donald Trump’s so-called One Big Beautiful Bill, which has been described as a “revenge tax”, would have imposed severe US tax retaliatory measures against entities in a “discriminatory foreign country”.

Matti Leppälä, secretary general of PensionsEurope, the umbrella association for pension fund bodies in the EU, told IPE the scrapping of Section 899 was “excellent news for pension funds investing in the USA”.

In a letter to members of the Senate earlier this month, PensionsEurope had warned that implementation of Section 899 would have hurt pension fund returns and reduced the attractiveness of the US as an investment destination.

“Proposals suggesting withholding rates as high as 50% on US dividends for investors from ‘discriminatory jurisdictions’ are financially unsustainable for pension funds,” PensionsEurope had written.

According to the FT, the new tax arrangements agreed between the US and the G7 are set to be discussed in the coming weeks at the OECD.

Pension funds have been urged to support the 2021 global minimum tax rate deal, with some pressing companies over their approach to tax.

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